Ethiopian Business Review

India Eyes Africa: The Implications of President Ram Kovind's Visit to the Horn of Africa

Ram Nath Kovind, the 14th and serving President of India, in office since 25 July 2017, made his debut official trip abroad recently with a first leg landing in Djibouti. Kovind’s visit to the horn of Africa’s tiny state, which in recent years is attracting significance due to the strategic geopolitical changes in the region, surprised many since there has never been a previous visit to the country by an Indian Head of State. His visit to Ethiopia, however, was less controversial because India at present is one of the top three sources of foreign direct investment in Ethiopia. Not only that, Ethiopia is also a significant bilateral trading partner of Asia’s third biggest economy. EBR’s Samson Hailu explores the reason behind the President’s visit.

In no way, the recent visit of India’s President Ram Nath Kovind to Djibouti and Ethiopia, which is his first overseas tour after taking office on July 25, 2017, was expected. This was because the visit particularly to Djibouti came for the first time since the horn nation got independent from France in 1977.  For some observers, this was a deliberate action taken by the Indian government which, in recent years, is in fierce competition with China, a country that have bold economic footprint in Africa. 

While the Chinese engagement in the continent is well established, India lags far behind in terms of establishing its influence in the continent. This is despite the fact that Narendra Modi’s government has been keen on expanding its influence in Africa ever since it took office in 2014. 

Before the president’s travel, Neena Malhotra, joint secretary in charge of East and South Africa in the Indian Ministry of External Affairs said: “Africa is chosen as the first destination of the President’s overseas visit — an index of the importance attached to the African continent by the current government.”

Yet, many wonder why Modi’s administration chose Djibouti as Kovind’s first destination considering the insignificant bilateral trade relation both countries have, which stood at USD284 million in 2016/17. International relation experts who closely observe the rise of Djibouti as key state in the Indian Ocean region stress that the visit should be seen as a move of challenging China’s growing presence that went beyond economic ties and stretched up to constructing military base in Djibouti, which is China’s first military base abroad.  

China began construction of a base in Djibouti last year and on July 2017 ships carrying personnel have set sail to begin setting up the facility in Djibouti. According to the Ministry of Foreign Affairs of China, the agreement with Djibouti ensures Chinese military presence in the country for the next ten years. 

Djibouti also hosts the largest American permanent military base in Africa, which is home to more than 4,000 military personnel. The French naval base is also located in Djibouti while countries like Japan use the Djibouti-Ambouli International Airport to launch operations. 

While several countries have military presence in the tiny nation, it is the Chinese military base that raises eyebrows globally.

It is in the midst of these that the news of Kovind’s visits to Djibouti came to the air, “Choosing Djibouti as my first country to officially visit was a conscious decision.” Kovind said while addressing the Indian community in Djibouti. “Djibouti is a country at a strategic location, just off the Gulf of Aden. It is an important partner for India in the Indian Ocean.” He appreciated Djibouti’s help to India at the time of rescuing 5,000 Indians from Yemen back in 2015.

Besides political reasons, India has growing investment and trade interest in Africa. Bilateral trade between Africa and India increased by five folds between 2005/06 and 2015/16 from USD11.9 billion to USD56.7 billion, according to a document prepared by the African Development Bank Group entitled ‘A Shared Development Agenda’ in 2016. Even better, the two side trade is expected to reach USD100 billion in 2018. 

The tie is also deepening as India is already the fifth biggest source of foreign direct investment in the continent. In the last two decades, Indian businesses invested USD54 billion, which accounts for 19.2Pct of India’s total investment overseas. Mauritius, Mozambique and Sudan are the top three destinations of Indian investment with USD4.7 billion, USD2.7 billion and USD1.2 billion capitals respectively.

Ethiopia, which hosts the African Union headquarters in Addis Ababa and started bilateral diplomatic relations with India in 1948, is also an important country for Indian investors. Between August 1993 and September 2017, 435 projects with an investment capital of ETB25.1 billion (Approximately USD1 billion) were implemented by Indian investors, according to information obtained from Ethiopian Investment Commission (EIC). 

Out of the total projects, 329 are operational with an investment capital of ETB16.7 billion and created 20,151 permanent and 27,788 temporary employment opportunities while 106 projects with investment capital of ETB8.4 billion are under implementation stage. 

Rajeev Kumar Sharma is one of the Indian investors that came to Ethiopia in 2009. After two years of preparations, he opened Anmol Products Ethiopia, a company engaged in paper conversion. 

“Ethiopia managed to register a wonderful economic growth in the last decade and many systems that support investors are already in place.” Sharma told EBR. “Ethiopia is also the second populous country in Africa, which makes the country ideal for investors that are looking for big markets. These are the [numerous] opportunities that await businesses in Ethiopia and Indian companies are [taking a note of them].” 

Kovind, who arrived in Addis Ababa on October 4, 2017, echoes the same opinion. “Trade relations between Ethiopia and India started during the ancient Axumite Empire from the 1st century AD.” he said. “The economic ties now cover trade, private investment, concessional loans for infrastructure projects and development assistance, largely for capacity building.”

Ever since Prime Minister Hailemariam Desalege visited India back in 2016, the representatives of seven big Indian companies as well as 62 medium and small companies also visited Ethiopia looking for investment opportunities, according to Gizachew Addisu, an officer at Indian Desk at the Ministry of Foreign Affairs. “Delegates of 500 Indian business leaders accompanied the president.” Gizachew added.

Yet, Gizachew stresses that Indian investment in Ethiopia is not as strong as China and there is a reason for that. “The Chinese export led growth model relies more on the availability of cheap labour, which makes products inexpensive compared with the products of other countries traded in the international market.” he explains. “Since labour cost is rising in China, companies [migrate] to countries where labour is cheap. This is the major reason for the dominance of Chinese investment in Ethiopia.”

Indeed, information obtained from EIC reveals that Chinese companies, which largely rely on finance from their government than credits from banks in Ethiopia, have larger number of projects. Currently, there are 553 Chinese operational projects in Ethiopia, according to EIC. There are also 79 Ethio-China joint projects.

Gizachew added that labour cost in India is inexpensive compared with China. “This means there is less incentive for Indian businesses to go out of the country and invest in countries like Ethiopia.” On top of this, Sharma adds that there are challenges that affect the investment flow to Ethiopia which Indian investors find unattractive. Foreign currency shortage is the biggest problem though the government is doing everything to improve the situation.” he complements.

P. C. Shah, director of NEE Components, an Indian company engaged in the production of construction and manufacturing machineries disagrees with Sharma’s assessment. “Compared to the African countries I visited such as Nigeria, Tanzania, Zimbabwe and South Africa, situations in Ethiopia are less favorable for businesses.” Shah told EBR while he was in Addis Ababa to participate in the eighth Addis Build exhibition held from October 13 to 16, 2017 at Minimum Hall. “Problems related to customs and energy supply are among the major challenges investors face in Ethiopia. It is only in the industrial parks that investors can operate without facing these challenges.” He pointed out.

The political unrest that started two years ago has also had a debilitating effect on the level of investment, according to Shah. “While I tried to visit Hawassa Industrial Park, which my company supplied machineries for a couple of companies in the park, the road to the town was closed due to riots.” he mentioned. 

The partnership between India and Ethiopia is also cemented by a growing bilateral trade. Bilateral trade between the two countries amounted to USD 1.2 billion last fiscal year from USD800 million seven years ago, according to information obtained from the Ethiopian Revenue and Customs Authority. 

Agricultural products such as sesame and pulses as well as leather and textile products are the major commodities exported to India while machineries, transport equipment, medical, steel, food items, plastic and linoleum products, paper, textiles, chemical products are the major item imported from India. 

Nevertheless, foreign currency shortage in Ethiopia is severely affecting the facilitation and growth of bilateral trade between the two countries. “Our buyers from Ethiopia always extend purchase because there is scarcity of hard currency in the country.” says Shah.

Exporting from Ethiopia to India is not free of challenges as well. For instance, the volume of agricultural products sent to India declined by half last fiscal year due to controversies over the chemicals used to treat the products, according to Gezachew. 

Besides investment and trade, India extends concessional loan to African countries through its export and import (Exim) Bank. Until 2016, 150 projects in 45 African countries were financed with credits obtained from India worth USD10 billion, according to the African Development Bank Group. Ethiopia is among the major beneficiaries from the scheme. Close to USD1 billion has been invested in projects like Metehara, Wonji and Tendaho sugar projects, according to Gezachew. During the recent visit, the Indian president also promised to consider fresh line of credit of USDs195 million for development of power transmission line.


6th Year . November 2017 . No.55


 

 

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